How Many Workers Is the Right Number for a Retailer? Stories from Trader Joe’s, Michaels, and Whole Foods

A reader named Quinton White points us to an interesting article by Jim Surowiecki in The New Yorker about how retail firms are succeeding by hiring more workers and spending more money training and rewarding them. Surowiecki writes:

A recent Harvard Business Review study by Zeynep Ton, an M.I.T. professor, looked at four low-price retailers: Costco, Trader Joe’s, the convenience-store chain QuikTrip, and a Spanish supermarket chain called Mercadona. These companies have much higher labor costs than their competitors. They pay their employees more; they have more full-time workers and more salespeople on the floor; and they invest more in training them. (At QuikTrip, even part-time employees get forty hours of training.) Not surprisingly, these stores are better places to work. What’s more surprising is that they are more profitable than most of their competitors and have more sales per employee and per square foot.

The entire article is worth reading. It made me think of a retail experience I recently had in the opposite direction, and what that experience may say about that retailer’s prospects.

(Photo: Alisha Vargas)

Are you familiar with the Michaels craft-store chain? No, I didn’t used to be familiar with it either. But I now have a 10-year-old daughter who loves to do crafty projects and as it happens, a Michaels opened up recently within walking distance. So we spend a lot of time there.

One problem: the checkout line is always really, really long. One Saturday I went with my daughter to buy something and the line was so long — maybe 40 people, moving slowly — that we left. Then, a couple of days later, I popped over by myself, on a weekday afternoon, to get the stuff my daughter had wanted.

And the line was still long! Maybe only 15 or 20 people this time but too long for me to wait. I did, however, seek out the manager. I told her I was happy her store had such huge demand but why, even on a weekday afternoon, do you make it so hard for people to put money in your hands? Isn’t that the objective of running a store?

I was surprised when, instead of offering a pro forma apology, she began to explain how frustrated she was with the situation. She said it drove her crazy to see that line of customers waiting to pay and to see people like me leaving because of the line.

She explained that the problem is rooted in Michaels’ corporate headquarters in Texas. She said that every store in the chain (there are more than 1,000) has a “payroll bucket” from which to pay cashiers and, if my memory serves me correctly, each store’s payroll bucket is based on the store’s square footage.

The problem with this store, she said, is that it takes in a lot of money per square foot because this is Manhattan, where square feet are scarce but where customers aren’t. In fact, she said, this new store had immediately become one of the most profitable stores in the chain. And yet she couldn’t shake free any more payroll money (yet, at least — she said she’d been trying hard) because of the existing square-footage/payroll formula. She said she wanted more money to not only hire more cashiers but also to build more registers.

I hope she gets her way. It seems a shame for a successful store in a chain to not be able to maximize its profits, and to best serve its customers, simply because of a formula that works in some places but doesn’t work in others.

Of course I have no way of knowing if everything she told me is accurate. But it was an interesting conversation especially in light of the bigger question that Surowiecki wrote about.

FWIW, critics — especially Democratic critics — may note that Michaels is a chain that went public a long time ago, expanded widely, and was taken private in 2006 when it was acquired by two investment firms: the Blackstone Group and, yes, Bain Capital.

Also FWIW: one of the reasons I find shopping at Whole Foods so pleasurable is that there are so many employees — who, it appears, are trained to physically escort you to an item if you can’t find it. So while I may pay a few pennies more on the dollar for something at Whole Foods (or maybe not), in part because of higher labor costs, at least the labor costs directly translate into a superior customer experience.

COMMENTS: 27

I really like Barnes and Noble’s solution to having too few employees on the floor (it’s annoying when both the customer service reps are tracking down books for someone else).

Several of their stores now have computers you can use to look up the book you want. It will show whether or not the book is in stock, and even provide you with a map of the store indicating where it is.

You don’t have the personal touch of an actual employee there, but you also don’t have to worry about embarrassing yourself with a really dumb question (it’s a little weird being a 20-something male telling a sales clerk that the author of the Jessica Darling series has slipped your mind).

I have this hand held computer that will not only tell me if a book is in stock, but will provide several competing prices and will offer several ways to ship it to my house. Barnes and Noble should get one of those.

I’m from Tulsa, the QuikTrip headquarters city, and I can confirm, they are awsome.

Here’s how they got awesome.
1) they pay good wages – everyone in the city knows that, so as a result, lots and lots of people want to work for them. That means, QT gets to pick the best from a big pool. You don’t need a college degree to work for them, but you do need to be smart, sharp, and fast.
2) they train, train, train the employees to be fast and friendly. QT cashiers look at what bill you are pulling out of your wallet and will already have your change figured and HANDED to you by the time you put it on the counter. No exaggeration, they are THAT fast.
3) the bathrooms are always super clean, I mean like a museum
4) they have plenty of people on staff all the time and they drop everything to check people out of the line
5) great, fresh food all the time and CHEAP fountain drinks
6) low gas prices – they still have the best gas prices
7) every employee in the entire company spends time as a cashier. Everyone. Every executive, accountant, everyone. This means that the corporate vision of Great Cashiers = Great Gas Station is never lost. This means the entire company knows what it is like on the front lines, so management doesn’t ask the employees to do anything that they haven’t done themselves.

So you ask, how can they have the lowest gas prices, higher labor costs, and STILL be more profitable than their competitors? Simple answer: customer loyalty.

Lots of QT customers ONLY buy their gas from QT. People who like QT don’t buy gas from anywhere else if at all possible. They plan their refills so they can be loyal.

Put it this way: QT is so awesome, that people from Oklahoma brag on QT to friends out of state.

I found this to be incredibly interesting, as it absolutely rings true in my experience. You get what you’re paying for sometimes with discount retailers who price merchandise competitively low but skimp heavily on customer service. I work part-time for The Container Store in Manhattan on Lexington Avenue and they live and breathe the principle of hiring great people, thoroughly training them to do their jobs, and compensating them accordingly. We have spent 13 years on Fortune’s 100 Best Companies to Work For, so they’re doing something right! I have worked as a full-time retail manager in the past but I’ve never seen anything quite like this. It has showed me just how low we sometimes set the bar of expectations for our own customer shopping experience and that it IS okay to demand more since it generally works out better for the company as well.

A neat fact is that John Mackey, the Co-Founder and Co-CEO of Whole Foods Market, and Kip Tindell, Chairman and CEO of The Container Store, were once college roommates in Austin at The University of Texas. Great minds think alike!

I find this interesting, because I always read this about TCS. I shop at the Manhattan location in Chelsea a lot, and indeed the stores are immaculate, I always find what I need, and the staff are friendly. However, there are always at least a dozen people in line and maybe 3 registers open (And the checkout area there is horribly laid out so I can never tell when a register opens up, but that’s beside the point). I can never figure out how this integrates with their corporate philosophy, except maybe they figure after I’ve schlepped up there and browsed, I’m not leaving now because I have to wait an extra 10 minutes.

The experience is not unique to that store — the same is true of most Michaels regardless of location (for example, Santa Monica, CA). I believe the staffing levels are a calculated decision based on customer demographics and marketplace. Although the long lines make customers will be unhappy it won’t prevent them from returning as they don’t have other options. There are of course alternatives but typically inconvenient, less inclusive, more expensive, or all the above (and the Internet is not a very good substitute as physically seeing the product is important here). Since the demographic is typically “people making things themselves,” the time-cost tradeoff is annoying but worth it to most customers.

Not to say they couldn’t make even more money running the store the right way. I absolutely hate it, and think they made the wrong choice (and hope it does actually fail, so they’ll right it). But I am certain it’s a calculated move intended to infuriate customers who are powerless to do much about it.

I worked retail many years ago and learned that a big differentiator between a quality shopping experience and frustration is having the employee walk you to the item you want. It’s a small touch that goes a long way. Understanding this, when I ask someone in a Whole Foods for help, I ask them “can you tell me in which aisle I may find X?” If they insist on escorting me, I’ll let them, but I do appreciate that they have other work to get done.

I love going to Trader Joe’s because I get treated with a smile and with respect. I know I pay a little more for some things than I could pay in other places, but the good service is worth it. Especially in New England where service people are usually only as friendly as the general populace.

Good service saves time. And if I end up paying $5 more for 20 minutes less in the store, I’m a happy camper.

One difference is that Michaels is owned by private equity – Bain and Blackstone – and they penny pinch, perhaps because they loaded the company with debt to take it private and pay themselves off. TJ’s is privately owned. Costco is public but is still run by one of its founders.

Another blunt point is companies decide on how they measure. Costco measures transactions per hour, number of customers served, etc. Those are measures of efficiency. They used to have terribly slow check-outs – and still can, mostly because they’re busy and people buy so much – but now they staff to handle for efficiency for customers.

Another example is Starbucks. They look at how a store is doing every quarter and half and have standard metrics that determine number of employees for volume. This can result in short term issues – I’ve seen stores have a big jump in business and struggle until they get a new staffing level – but they react fairly fast for a big company.

Another example is Wegmans. Much has been written about them; they train cashiers for something like 40 hours before letting them on the floor. When you walk by the checkout aisle, cashiers without customers come out to meet you.

Still another example is Apple. $6k psf sales. That’s higher than a really good jewelry store – which might do half that psf. Lots of people on the floor.

Regarding Starbucks’ schedule calculations (I work in a similar coffee shop chain) … yes, the scheduling software calculates how many people are needed to serve every fifteen minutes and schedules accordingly. Problem is, no one wants to come to work only for that 4 hour morning or afternoon “peak,” which is often what the software will schedule. And the pay is so low, that no one can afford to work what the software schedules everyone but management – a maximum of 28 hours/week. So that drastically limits the pool of who wants to work at our coffee shop to students, people with other jobs, or people looking for other jobs, which leads to even more problems: lack of staff loyalty, people whose other work schedules need to be accommodated, and people who jump ship when a “real job” comes along. Can you tell I manage this coffee shop, and am very frustrated?

Instead of looking at employee numbers in terms of hiring per square footage, the ratio should be more fixated on finding quality workers for an extended period versus hiring just for a rush (holiday).

So for a store, say Costco, the ratio could be (square footage of business X customers per day X average purchase value in dollars) / (cost of training an employee for 1 week / average number of months the employee is employed at the business).

Provided, your training employees at an appropriate level for their given position.